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SOUTH AFRICA: Risk of more severe energy cuts this week as Eskom strike intensifies

29 June 2022 Jeff Schultz, Senior Economist at BNP Paribas South Africa

South Africa’s state-owned power utility, Eskom, is facing additional challenges to keep the lights on this week following heightened levels of industrial action around wage negotiations which collapsed last week.

Unions are currently demanding a 12% wage increase versus the financially troubled power company’s offer of 4.7%. As Eskom is considered an “essential service” any decision to strike by employees is considered illegal and hence unprotected (dismissible offence).

Eskom on Friday applied for (and received) an urgent interdict to stop the strikes at a number of its major power stations across the country. Eskom’s CEO, Andre De Ruyter, this morning warned that an unprecedented “Stage 6 loadshedding” (6000MWh removed from the 48000MWh system) from the current “Stage 4” (-4000MWh) was not out of the question as the utility struggles with staffing issues, threats of sabotage at its power plants, various forms of labour unrest related disruption at several power stations, amid an already heavily constrained and unstable grid where its energy availability factor continues to fall and unplanned outages hit new highs (chart below).

Bottom line: We had warned over the threat of damaging industrial action this year in an environment of spiking inflation eating into consumer disposable incomes alongside still pressurized socioeconomic conditions – see South Africa: A winter of discontent for labour in 2022/23, dated 6 April. The Eskom wage settlement saga is reflective of these pressures and will undoubtedly be watched closely by policymakers, we believe (the SARB because of the threat of higher wage settlements into inflation and the Treasury which is currently in the throes of its own wage negotiation with unions that continue to demand 10% wage hikes).

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